VW to Ease Europe Woes With China Growth, Porsche Profit

April 29 (Bloomberg) -- Volkswagen AG expects profit to
grow in China this year as Europe’s biggest automaker looks to
remain resilient to a recession in its home region.

VW plans to grow faster than total auto demand in China,
which is set to increase 6 percent to 8 percent this year, the
Wolfsburg, Germany-based carmaker said today.

“Revenue and operating profit will grow this year” in
China, Chief Financial Officer Hans Dieter Poetsch said today
during a conference call with analysts. After the group’s
operating profit dropped in the first three months, the pace of
earnings should pick up in the course of the year and the second
quarter should “beat first-quarter numbers.”

VW’s position in China, where it plans to build seven
factories, has helped the German manufacturer sidestep slumping
demand in Europe. The addition of Porsche, which was fully
integrated in August, also helped offset a drop at the namesake
brand after the maker of the 911 sports car contributed 573
million euros ($750 million), or 24 percent of Volkswagen’s
first-quarter earnings.

“The resilience of VW’s premium business was once more
evident during the quarter,” David Arnold, a London-based autos
specialist at Credit Suisse said in a note to clients. Profit
from China took “another step up,” after VW’s earnings from
its Chinese joint ventures surged 36 percent to 1.16 billion
euros in the quarter.

Shares Rise

VW’s presence in China and profit from Porsche, Audi and
Bentley have helped the company avoid the full effects of
slumping demand for mass-market cars in Europe. Chief Executive
Officer Martin Winterkorn last week pledged to extend that
advantage by expanding in China and further boosting the
company’s presence in luxury autos, where profit margins tend to
be higher.

The Audi division retained its position as VW’s largest
earnings contributor with 1.31 billion euros in first-quarter
earnings, or 56 percent of the group total versus 45 percent a
year earlier. VW-brand profit tumbled 46 percent to 590 million
euros because of lower sales, especially of higher-end models.

As part of Volkswagen’s upscale push, Porsche will add the
918 Spyder hybrid supercar this year and the Macan compact
sport-utility vehicle at the beginning of next year. Audi, which
aims to take the global luxury-car sales lead from Munich-based
Bayerische Motoren Werke AG by 2020, is planning to double its
SUV lineup. The development of a new Bentley SUV is progressing,
Winterkorn said last week.

‘Tough Environment’

The European car market’s sixth straight annual contraction
is hampering growth at the German manufacturer, which plans to
overtake world industry leaders Toyota Motor Corp. and General
Motors Co. by 2018. VW is working to counter the decline by
rolling out 60 new and updated models this year, including fresh
versions of the Golf hatchback, Audi A3 compact and Skoda
Octavia small car, and tapping into emerging markets.

“We made a healthy start to the year, but the coming
months will be anything but easy,” Winterkorn said in a
statement. “The current environment is definitely a tough
challenge for the entire industry.”

Group first-quarter operating profit, which doesn’t include
earnings from the Chinese joint ventures, fell 26 percent to
2.34 billion euros as revenue declined 1.6 percent to 46.6
billion euros, VW said last week.

Seat Losses

The operating loss at the Seat division in Spain, VW’s only
unprofitable brand, widened to 46 million euros from 29 million
euros a year earlier. Earnings fell 46 percent to 112 million
euros at the Czech brand Skoda.

The company’s sales of cars, SUVs and delivery vans all but
stalled last month with a 0.2 percent increase, restraining the
first-quarter advance to 5.2 percent, as deliveries in
Volkswagen’s home German market tanked 17 percent.

Still, the manufacturer stuck to its target of higher auto
sales and revenue in 2013 even as Europe auto demand heads to a
20-year low. VW also affirmed today a forecast to “match”
2012’s operating profit of 11.5 billion euros this year.

VW has been able to steer through the European slump better
than mass-market competitors such as French manufacturers
Renault SA and PSA Peugeot Citroen, the region’s second-largest
carmaker. Both of those companies are eliminating 17 percent of
their domestic workforces to scale back costs, while Peugeot is
closing a factory near Paris.

VW is countering with plans to invest $19 billion in
production outside Europe, including new factories in China.

The expansion isn’t always smooth. The manufacturer set
aside a “low three-digit million euro” sum for a transmission
recall in China after a state television featured complaints
about vibrations, loss of power and sudden acceleration in Golfs
and other cars.